Former US secretary of the Treasury Lawrence Summers said he sees a risk of increased financial instability worldwide, accompanied by slower US and global growth.
“This is a moment of more than usual financial fragility, including in China,” Summer said in an interview on Monday.
“There are many uncertain interconnections” in the markets, the Harvard University professor said.
In a Twitter message earlier on Monday, Summers compared recent developments with the 1997-1998 Asian financial crisis and the 2007-2008 subprime credit meltdown, saying, “We could be in the early stage of a very serious situation.”
Expanding on that comment in the interview, Summers said that the dangers from both those previous crises were “greatly underestimated” at first.
World stock markets cratered on Monday, with the Standard & Poor’s 500 Index plunging 3.9 percent. The rout pushed the S&P 500’s two-day loss to 7 percent, the most since the height of the 2007-2008 financial crisis, amid the worsening global selloff that saw Chinese shares sink the most since 2007 and stocks in Germany fall into a bear market.
Summers said that it would be a mistake for the US Federal Reserve to increase interest rates at its meeting next month, given what is going on. Fed Chair Yellen told Congress on July 15 that the US central bank is likely to raise rates later this year, assuming its forecasts for stronger growth and lower unemployment are realized.
The Fed has held its target for the federal funds rate at zero to 0.25 percent since December 2008, as it strove to resuscitate the economy from its worst recession since the Great Depression.
“The balance of risks is towards more financial instability, slower growth, disinflation and deflation,” Summers said. “That’s not a time to be raising rates.”
He said consumers and companies probably would put off some spending decisions given what hass been happening in the financial markets.
Summers also voiced skepticism about arguments by some Fed officials that the central bank should boost rates because the US is approaching full employment.
“The only reason why full employment is a problem is if it leads to inflation, and I have yet to see any evidence of that happening,” he said.
The jobless rate has fallen to 5.3 percent from a high of 10 percent in 2009. Most Fed officials reckon that a 5 percent to 5.2 percent rate is equivalent to full employment, according to projections released after their meeting last month.
Atlanta Fed President Dennis Lockhart said he continues to expect the Fed to raise rates this year, while cautioning that a stronger dollar, a weaker yuan and falling oil prices complicate the outlook.
“I expect the normalization of monetary policy — that is, interest rates — to begin sometime this year,” Lockhart said in Berkeley, California, without citing a particular month.
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort